Co-operative Party 19th December 2013 Blog Co-operative development Economy Share Tweet Co-operative Party MSP Kezia Dugdale recently secured and opened a debate on the future regulation of the Payday Loan industry, which came after a visit from Citizens Advice Scotland and Santa Claus himself to the Scottish Parliament. Kez and Santa spoke at length about the dangers of taking out payday loans, and in her speech she highlighted some of the statistics that Santa wants everyone to know this Christmas. Kezia Dugdale (Lothian) (Lab): I thank members for staying and draw their attention to my entry in the register of interests, in which I am listed as being a member of the Capital Credit Union and the Co-operative Party. There is a roll call of shocking statistics about the degree to which payday lending is a problem in the UK today. One in three people in Scotland cannot afford to save and one in five has no savings at all. The payday loan industry was worth £2.2 billion to the UK in 2012; 8 million loans were made in that year alone. We know that the most common use of payday loans is to pay for food, closely followed by fuel—gas and electricity bills. The roll call of statistics is endless, but I specifically want to tell Parliament about one of my constituents, called James. James took out a £200 loan to buy some extra Christmas presents in the run up to Christmas a few years ago. When January came and the pay cheque was late, he could not keep up with that loan, so he took out a bigger loan to pay the first one off. When the payments for the second loan got too difficult, he went to another payday loan company and took out another loan. Before he knew it, he was £5,000 in debt to five different companies. Members might think that £5,000 is not a great deal of money—plenty of people have £5,000 car loans or carry that amount of credit on their credit cards—but the problem was that by the time James got to £5,000, every single penny of his wages was going on payday loan debt. That is because payday loan companies use something called a continuous payment authority, which is basically a computer programme that can check a person’s bank account every five minutes to see whether there is money in it. That is what people sign up to when they take money from Wonga. Every five minutes, it can test their account to see whether they have money there, and if they have been paid it will take their wages. It will take their money before their rent goes out, before electricity bills or council tax bills go out—it might even take it before they even know that they have been paid. That is how people get into tremendous amounts of trouble. James is in a better position now, because he went to a citizens advice bureau and got the help that he needed, but there are countless people like him. We need to be very careful about using the language of vulnerability to suggest that people who go to payday loan companies are somehow vulnerable because that is not strictly true. We know that 75 per cent of people who take out payday loans are in full-time work, that 50 per cent of them are men, that 50 per cent of them are under the age of 35 and that 30 per cent of them own their homes. We are talking about working Scotland: people like James. What can we do about the situation? First and foremost, we need to cap the cost of credit and limit the interest rates that the companies can charge. My friend and colleague Stella Creasy has been campaigning for years on that issue. I am pleased that her campaign has been successful and that the UK Government has committed itself to a cap. After all, we need to remember that these companies are in the UK only because they have been legislated out of America state by state. The maximum interest rate that can be charged in Germany is 40 per cent, but we let Wonga charge 5,284 per cent and let families get into tremendous amounts of trouble. The UK Government is acting only because it has been forced to do so by the efforts of thousands of anti-payday-loan campaigners across the country. However, James’s story makes it clear that capping the cost of credit alone is not enough. We need to tackle the rollovers and stop companies upselling products by telling people, “If you can’t pay that loan, we’ll give you a bigger one and you can just pay it back over a longer period.” We also need to address the prolific and relentless advertising of payday loans that has taken over our radio and television stations, that arrives in people’s inboxes and which comes through their letterboxes. In an interesting report that it published this week, the Office of Fair Trading pointed out that in 2009 there were only 17,000 payday loan adverts on our TVs. By 2011, the figure had reached a quarter of a million and, last year, there were 400,000 adverts for payday loans on our TVs and airwaves. Given those figures, I was keen to highlight the issue in my motion. Put bluntly, payday loan companies are profiting from the cost of living crisis that the country is facing. For too many families, there is simply too much month left at the end of the money. No one knows that better than those who work in citizens advice bureaux across the country and who see 100 people a week turning to them for help. They are in a unique position not just to quantify the problem, but to explain exactly what is going on behind the scenes, so I am pleased to be able to highlight some of the evidence from its payday loan report card. That report card points out that only 35 per cent of the people who went to payday loan shops were asked whether they could afford the loan before they took it out and that only 20 per cent were asked to provide any sort of evidence on their income. It also points out that 16 per cent were asked whether they wanted to take out a bigger loan without being pressured to do so, and that only 7 per cent were offered free and independent debt counselling. Those truly shocking statistics show that even with capping the cost of credit we still need to address so much more about the way these companies go about their business. Two years ago, I set up the debtbusters campaign for three reasons: first, to take on payday loan companies street by street; secondly, to promote credit unions in their place; and thirdly, to improve debt relief. Indeed, this week, Jackie Baillie and I have taken to the streets across the country, not least the high street in Shieldinch on the set of “River City” as we tried to save the character Scarlett Mullen, who is in a tremendous amount of payday loan debt. I also pay tribute to Glasgow City Council, which is doing a tremendous amount to take on payday loan companies. I think that it has the most progressive anti-payday loan policy in the UK; it is looking at advertising, pensions, planning, rates relief and the rents that credit unions could pay to give them an advantage over payday loan companies. However, it is no use telling people, “Payday loan companies are bad” when they are desperate and need access to affordable credit. In that respect, credit unions have part of the answer. I know that we will have the opportunity to debate the issue in detail next week, but I simply point out that credit unions such as the Capital Credit Union offer a direct alternative to payday loans by providing instant access to money that is capped at an interest rate of 26.8 per cent. We need to invest in and to see more of that alternative model—I know that the Government is considering options in that respect. The final part of the debtbusters campaign is debt relief. Given that we are about to debate the Bankruptcy and Debt Advice (Scotland) Bill, I ask the Minister for Energy, Enterprise and Tourism to think about what else he can do with that legislation to protect people from payday lenders. As I have said, even after we have capped the cost of credit, there is still so much more to do. For example, we have to examine the link with football clubs and look at financial education in schools. I thank members for coming along and listening to the arguments, and I particularly thank Santa, who, although he is very busy at this time of year, was outside Parliament this morning warning people against payday loans. The fact that Santa has time to do that shows how important the issue is.